Wednesday, August 2, 2017

The
Joint Center for Housing Studies of Harvard recently released the 2017 version
of its "State of the
Nation's Housing" report. Buried in the pages of this very
thorough report, we find some interesting data regarding the affordability of
housing in the United States and how many households simply cannot afford
housing now and perhaps ever, a factor that will ultimately have a negative impact on the housing market.

Let's
start by looking at some background data. The late 2000s collapse in the
U.S. housing market is still being felt throughout many parts of the United
States. While national housing prices have finally surpassed the highs
last reached in 2006 as shown here:

...in
real terms (inflation-adjusted), national home prices remain 15 percent below
their previous peak meaning that homeowners have yet recoup their lost housing
wealth. Of the 100 largest housing markets in the United States, housing
prices in only 41 of those metropolitan markets now exceed their previous peaks
and prices in 32 metropolitan markets are still 15 percent or more below their
2006 peak. As well, the 5.6 percent year-over-year price increase during
2016 is the lowest growth rate since 2010 - 2011, suggesting that, despite the
Federal Reserve's lengthy experiment with near-zero interest rate policies, the housing market could
well be reaching another peak.

Despite
the increase in housing prices across the nation, there are still 3.2 million
households that are underwater on their mortgages. This is down from 4.3
million in 2015 but still represents 6.2 percent of all homeowners. The
percentage of underwater homeowners varies widely across the nation from highs
of 16.1 percent in Miami, 15.5 percent in Las Vegas and 12.6 percent in Chicago
to a low of 0.6 percent in San Francisco. The number of households
with low equity also fell from 9.5 million to 7.7 million on a year-over-year
basis.

Here
is an interesting map showing how real home price appreciation (between January
2000 and December 2016 has varied across the United States:

As
you can see, markets located along the East and West Coasts have seen
inflation-corrected home values increase by more than 40 percent since 2000
whereas metropolitan areas throughout much of the formerly industrial Midwest and South have
experienced decreases in real home prices.

So,
while the U.S. housing market looks reasonably healthy, millions of Americans
are left out in the cold when it comes to affordability, an issue that has led
to some interesting variability in the health of the national housing market.
Let's look at some statistics:

1.)
Renters and Affordability: On average, 45 percent of renters across
America's metropolitan areas can afford the payments on a median-priced home in
their markets, however, that share ranges from less than ten percent in Pacific
Coast markets to roughly 70 percent in the Midwest and rural parts of the
South. Here is a map showing how the share of income that renters pay for
housing grew and remained at historically elevated levels after the Great
Recession:

The
share of renters with severe housing cost burdens varies from a low of 18.4
percent in El Paso, Texas to a high of 35.4 percent in Miami, Florida.
Even with moderate rents, households in low income regions find that they
have severe housing cost burdens.

High
rents in some metropolitan areas are also delaying household formation among
younger adults as shown on this graphic:

2.)
Housing Cost-Burden: Using a "30 percent of income"
affordability cutoff, the number of housing cost-burdened households fell from
39.8 million in 2015 to 38.9 percent in 2015. Households that are
severely burdened (those that are paying more than 50 percent of their income)
also fell from 19.3 million in 2014 to 18.8 million in 2014. Of these
severely burdened in 2015, 11.1 million were renters an increase of 3.7 million
since 2001, and 7.6 million were owners, up 1.1 million since 2001. This
is fascinating given that 30-year fixed mortgage rates have done this since 2000:

3.)
Disparity in Price Appreciation and Affordability: The gap between
housing affordability in low- and high-cost markets continues to grow as shown
in this figure:

Back
in 2000, the median home price in the most expensive market was 6 times higher
than the least expensive market; by 2016, this differential had increased to
more than 11 times. In 2016's ten highest-cost housing markets, real
median home prices increased by 63 percent to $574,460 over the decade and a half since 2000. In sharp
contrast, in 2016's lowest-cost housing markets, real median home prices
increased by only 3.6 percent since 2000. As well, in 19 markets located mainly in
the Midwest, real home prices in 2016 were actually lower than they were in
2000. So much for the wealth effect of housing! What is particularly
concerning is that, over the period from 2000 to 2016, real housing prices in
low-income neighbourhoods in the ten highest-cost metropolitan areas were up by
a whopping 150 percent on average, outrunning the 109 percent increase in
high-income neighbourhoods in these same metros. This obviously means
that it is becoming increasingly difficult for low-income families to afford
homes in their traditional neighbourhoods.

4.)
Growing Economic Segregation: From 2000 to 2015, the number of people
living below the federal poverty line grew by 41.1 percent to 47.7 million.
As such, the number of high-poverty neighbourhoods (a poverty rate of
more than 20 percent) increased by 59 percent and the poor living in these
neighbourhoods increased by 76 percent. The number of people living in
neighbourhoods with concentrated poverty (a poverty rate of more than 40
percent) doubled to 6 million people from 2000 to 2015. Over the past
decade and a half, the number of people living in poverty has increased
markedly in suburban and exurban communities as shown here:

While
34 percent of America's poor live in high density neighbourhoods, data suggests
that the largest and fastest increase in poverty has been experienced in areas
outside of urban core areas, unlike the pattern established in the 1960s and
1970s.

5.)
Homeownership Rate: Here is a graphic showing the homeownership rate
going back to 1985:

As
you can see, the homeownership rate continued to fall for the 12th consecutive
year in 2016, reaching 63.4 percent, 5.6 percentage points below the peak in
2004 and 0.6 percentage points below its level back in 1994. The drop in
the homeownership rate since 2004 varies widely by race/ethnicity:

White
- peak 76 percent, 2016 rate 71.9 percent

Hispanic
- peak 48.1 percent, 2016 rate 46 percent

African
American - peak 49.7 percent, 2016 rate 42.2 percent

Looking
at the 50 largest metropolitan areas, home ownership rates also varied
geographically from a low of 47.9 percent in Los Angeles to a high of 69.2
percent in Pittsburgh. Between 2006 and 2015, homeownership rates dropped
in all 50 of the largest metropolitan areas from a decline of 1.6 percentage
points in Buffalo to a decline of 9.0 percentage points in Las Vegas.

I
think that's enough housing statistics to digest for one posting. As you can see, the
health of the housing market in some parts of the United States is still showing signs of the
weakness that developed during 2006. Thanks to the Federal Reserve's
ultra-low interest rate policies, some markets, particularly in California,
have shown house price appreciation that has left many families out in the cold
when it comes to affordability. Other markets are still showing limited
"real" improvement, a trend that is concerning given that we are now
eight years into the most recent economic expansion. Given the fact that
millions of households are suffering from severe and growing housing cost
burdens suggests that as the Fed continues its policy of normalizing interest
rates, they will continue to be shut-out of the U.S. homeownership dream, a
factor that will have a negative impact on the demand for housing in the
future.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.